You know you need a rainy-day fund to pay for unexpected expenses, like temporary unemployment or automobile repairs. But do you know where to stash that cash until you need it?
You could use a shoebox—it’s easily accessible—but it isn’t necessarily safe. Plus, you won’t earn interest hiding money under your bed. There are better options to keep your emergency cash working for you. Here are some bank product options to consider:
High Yield Savings Account. These accounts have a number of upsides.
- They’re inexpensive. Many require a low minimum deposit to open, charge no monthly maintenance fees and have no minimum balance requirements.
- They’re liquid. You have 24/7 access to your money at all times.
- They bear interest. If you deposited $25,000 in an account that yielded 0.65% APY, in a year, you’d have accrued more than $160 in interest - not a lot, but more than you’d get from a shoebox.
- They’re safe. If the bank is backed by the Federal Deposit Insurance Corporation (FDIC), your money is insured up to $250,000 per depositor.
Money Market Accounts. These accounts are federally insured like savings accounts and often pay higher interest rates. They’re liquid, too, typically offering check-writing privileges to owners. There may be limits to the number of checks you can write each month, so you don’t want to overdo it, but that shouldn’t be a problem if you use the account for emergencies only.
Certificates of Deposit (CDs). Bottom line: An emergency fund should be stable and accessible. CDs provide FDIC-insured stability, but accessibility comes at a price. CD money is locked away for a set period of time—six months, nine months, a year, longer – which is why CD’s are not generally recommended for emergency funds.
Having money on hand for emergencies can help you avoid dipping into your retirement savings in a pinch, or borrowing money from family and friends.
For more information, please contact your TIAA Advisor. If you do not have a TIAA Advisor, call us at 888-211-3868 and we can assist you.